A Vacation Club Or А Vacation Investment Fund? We Can Help You Decide

Published May 30th, 2019

Sometimes the best ideas are the most obvious ones. As the owner of an advertising agency in Park City, one of the country’s best-known ski towns, Equity Residences director Steve Dering noticed that the cost of Deer Valley Resort homes was very high, but owner use was relatively low. “I discovered that the people who were spending a lot of money on Deer Valley homes were only using them personally for three to five weeks a year,” he recalls.

Although Deer Valley prohibited timeshares, Steve saw a way to both sidestep that restriction and improve upon the concept. “I thought there was an opportunity to create a shared ownership opportunity that wasn’t a timeshare, but was an attractive alternative to whole ownership,” Steve’s idea was to create a shared real estate product that would appeal to the affluent Deer Valley market.

This fractional ownership model would include many of the benefits of whole ownership – fractional owners would receive an annual amount of vacation time that matched typical personal use of a Deer Valley home, in a resort setting complete with hotel services and amenities – at a much lower price point and with greatly reduced annual expenses.

In addition to the greater amount of vacation time, the biggest departure from timeshare – and the real value – would be that Deer Valley fractional owners would possess a deed to the underlying real estate. These fractional ownership models would later be referred to as “residence clubs”.

Timeshares, of course, conjure up some fairly negative stereotypes – spending hours listening to salespeople drone on at you when you really just want to be lying out by the pool; having to rearrange your year just to get that week at the timeshare; wondering why you’re spending all of that money without having any equity to really show for it.

What is a “vacation club”?

To counter that, many timeshare operations have opted to refer to themselves as “vacation clubs”. The name may change, but the core concept is still the same: vacation club members essentially buy time at the club’s vacation properties. Typically, new members pay a fee to join the vacation club and then are charged additional occupancy fees when they stay at the various properties.

Disney’s Vacation Club is a well-known example; members purchase a set number of points and then use those points to book vacations at Disney properties.

High-end hotels like Ritz-Carlton have vacation clubs as well, but they put a twist on the concept. Ritz-Carlton’s vacation club is a great example of how this model differs from the standard vacation club.

From Ritz-Carlton’s website: “Owners enroll through the purchase of a beneficial interest in a trust that holds title to real estate. Because each interest is deeded, it is equity ownership and may be passed down to your children and grandchildren.”

While the buy-in price for Ritz-Carlton membership can be anywhere between $100,000 and $800,000, buyers have to pay annual maintenance fees as well. There is a secondary market for luxury timeshares where original buyers sell of their weeks for as low as $29,000, which is a very steep discount from the original price. The sales may be due to high annual maintenance costs charged to the members.

What is Equity Residences?

Steve Dering explains again: “Equity Residences is a private equity fund that carefully evaluates and then invests in luxury vacation real estate. Our investors share in property appreciation and benefit from the rental of our homes.” The keyword here is an “investment”.

Investment in Equity Residences’ current fund, the Equity Platinum Fund, starts at $157,500. Upon making that investment, Platinum Fund investors become owners of a portfolio of homes that eventually will comprise 20 to 25 luxury vacation residences located in some of the world’s most desirable vacation spots.

One of the biggest differences between Equity Residence homes and residences typically offered by vacation clubs is that the Equity Residences’ homes are predominantly single-family homes as opposed to condominiums – from a ski-in/ski-out chalet in Northstar Resort, Lake Tahoe to a four-bedroom house in Mauna Lani, Hawaii.

And like all good real estate investors, Equity Residences management team uses time-tested tactics to maximize a property’s appreciation potential: developer negotiations, opportunistic acquisitions, buying in depressed markets, and buying homes under construction.

Investors come to Equity Residences with some knowledge under their belts, according to Steve. “I think almost all of our accredited investors previously have considered some type of vacation home purchase or right-to-use membership. They are savvy and study the pros and cons of each option. Equity Residences attracts those who want an attractive and predictable financial return, along with superb vacations, without incurring the high cost and headaches of traditional vacation home ownership. That narrows the field of candidates and, in my humble opinion, we offer the best business model and value.”

For Equity Residences investors, that savvy literally pays off in numerous ways. First, the homes themselves are expected to appreciate in value.

Second, income can be earned through rentals of the homes to non-members; because of the nature of the homes and their locations, this rental income can be considerable. This rental income defrays high costs of luxury home ownership and allows Equity Residences partners to pay annual dues that are significantly lower than comparable vacation clubs or other similar funds. The Platinum Fund annual fee is $3,000 which can be reduced or eliminated altogether by lower personal use and the resulting higher rental revenue.

Partners do not pay rental fees when enjoying Fund residences, but do pay a small flat visit fee which covers basic housekeeping and other minor fees directly related to their stay.

As with vacation and destination clubs like Inspirato, the Equity Residences homes are managed and cared for by staff – the Partners don’t need to worry about upkeep. Equity Residences partners enjoy all of the benefits of owning fantastic homes with none of the financial responsibilities – and accompanying headaches – that come with second home ownership.

And as a bonus, Equity Residences aren’t limited to the properties in the portfolio. Equity Residences has strategic partnerships with two affiliate companies – Elite Alliance and Thirdhome – to offer Partners a myriad of other properties to use for their vacations.

Ultimately, the choice between joining a vacation or destination club, or investing in a residence club, comes down to individual priorities. There are those who aren’t concerned with getting an ROI on the money they put into their vacation experiences. It’s probably fair to say that most people fall under this category – viewing vacations as a fun, and even necessary, expense. But for travelers who are looking for a solid investment as well as the opportunity to vacation in some truly stellar locations, Equity Residences has shown that the residence club model is an attractive one.

Since its launch in 2012, the Equity Villa Fund, the first fund created by Equity Residences, has seen 50% appreciation and its portfolio is enjoyed by over 100 investors. If you’re choosing between a vacation club, a destination club, and the experiential and financial opportunities offered by Equity Residences, understanding the distinctions can make a significant monetary difference.

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An accredited investor is someone who earned income that exceeded $200,000 (or $300,000 if married) in each of the prior two years, and reasonably expects the same for the current year; OR has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).